Acquisitions and Divestitures

12 Months Ended

Dec. 01, 2012

Acquisitions [Abstract]

Acquisitions Disclosure

Note 2: Acquisitions and Divestitures

Acquisitions

Engent, Inc.: On September 10, 2012 we acquired the outstanding shares of Engent, Inc., a provider of manufacturing, research and development services to the electronics industry, based in Norcross, Georgia. The acquisition added state-of-the-art development capabilities, testing resources and technical support infrastructure, which increased our capabilities in a wide range of microelectronic assembly technologies. The acquisition was a stock purchase and therefore encompassed all Engent, Inc. business operations and was recorded in our North America Adhesives operating segment.

The purchase price of $7,881was funded through existing cash. We incurred acquisition related costs of approximately $74, which were recorded as selling, general and administrative expenses in the Consolidated Statements of Income.

In addition to the initial consideration, the former owners of the Engent, Inc. business are entitled to receive a series of annual cash payments based on certain financial performance criteria during the period September 10, 2012 through November 28, 2015 up to a maximum additional consideration of $2,000. We used a probability-weighted present value technique based on expected future cash flows to estimate the fair value of the contingent consideration. The resulting fair value of the contingent consideration was $1,200 which was recorded in other liabilities and increased goodwill. Each reporting period we determine the fair value of the contingent consideration liability and any changes in value are reflected in the Consolidated Statements of Income.

Based on valuations we recorded:

Current assets	$	603
Property, plant and equipment		1,471
Goodwill		5,434
Other intangibles
Customer relationships		2,300
Noncompetition agreements		400
Trademarks		300
Other assets		325
Current liabilities		(84)
Other liabilities		(1,668)
Contingent consideration liabilities		(1,200)
Total cash paid	$	7,881

Our expected lives of the acquired intangible assets are as follows: customer relationships 10 years, non-competition agreements 5 years and trademarks 5 years.

Forbo Industrial Adhesives. On March 5, 2012 we completed the acquisition of the global industrial adhesives and synthetic polymers business of Forbo Holding AG. We acquired the Forbo Group subsidiaries that operate the industrial adhesives business and directly purchased certain assets used in the industrial adhesives business that were not owned by the former Forbo Group subsidiaries on a cash-free and debt-free basis. The purchase price was 370,000 Swiss francs or $404,725 at the rate of 1.09385 USD/CHF when the acquisition closed. We financed the acquisition with the proceeds from our March 5, 2012 note purchase agreement under which we agreed to issue $250,000 in 4.12 percent Senior Notes and a $150,000 term loan at an initial interest rate of 1.75 percent.

The Forbo industrial adhesives business acquired is known for the breadth of its product line in all of our core markets, particularly packaging and durable assembly. The acquisition gives us added product technology, people and skills that will enhance the competitiveness of our business. The global industrial adhesives business acquired operated 17 manufacturing facilities in 10 countries and employed more than 1,100 people globally. The acquired business will be integrated into our existing North America Adhesives, EIMEA, Latin America Adhesives and Asia Pacific operating segments. The integration involves a significant amount of restructuring and capital investment to optimize the new combined operating segments. In addition, in July of 2011 we announced our intentions to take a series of actions in our existing EIMEA operating segment to improve the profitability and future growth prospects of this operating segment. We have combined these two initiatives into a single project which we refer to as the “Business Integration Project”. See Note 5 to Consolidated Financial Statements for additional information.

The fair value measurement was preliminary at December 1, 2012, pending resolution of any purchase price adjustments. We expect the fair value measurement process to be completed in the first quarter of 2013. The following table summarizes the fair value measurement of the assets acquired and liabilities assumed as of the date of acquisition:

Current assets	$	172,345
Property, plant and equipment		92,443
Goodwill		136,658
Other intangibles
Developed technology		42,190
Customer relationships		58,910
Trademarks/trade names		21,880
Other		479
Other assets		4,605
Current liabilities		(84,251)
Other liabilities		(40,534)
Total purchase price	$	404,725

Our expected lives of the acquired intangible assets are as follows: developed technology between 7 and 12 years, customer relationships between 12 and 13 years, trademarks/trade names 8 years and other 3 years.

Based on fair value measurement of the assets acquired and liabilities assumed, we allocated $136,658 to goodwill for the expected synergies from combining the acquired business with our existing business. The goodwill was assigned to our existing operating segments as presented below.

North America Adhesives	$	31,563
EIMEA		97,466
Latin America Adhesives		1,584
Asia Pacific		6,045
Total acquired goodwill	$	136,658

The amount of goodwill deductible for tax purposes over a five year period is $9,419 and over a fifteen year period is $27,798. The goodwill non-deductible for tax purposes is $99,441.

Our Consolidated Statements of Income for the year ended December 1, 2012 included net revenue of $423,396from the acquisition.

The following unaudited pro forma information gives effect to the acquisition of the Forbo industrial adhesives business acquired as if the acquisition occurred on November 28, 2010. The historical financial information has been adjusted to give effect to pro forma events that are directly attributable to the acquisition, supportable and expected to have a continuing impact on combined results. The unaudited pro forma results do not include any anticipated cost savings from operating efficiencies or synergies that could result from the acquisition. Accordingly, the unaudited pro forma results are not necessarily indicative of what actually would have occurred had the acquisition been in effect for the periods presented. The unaudited pro forma information for the years ended December 1, 2012 and December 3, 2011, assuming that the acquisition occurred at the beginning of fiscal 2011, is presented below:

	Fiscal Years
		December 1,		December 3,
		2012		2011
Net revenue	$	2,019,103	$	2,015,362
Net income from continuing operations		71,946		83,216
Net income attributable to H.B. Fuller		129,281		92,106
Diluted earnings per share from continuing operations	$	1.42	$	1.67
Diluted earnings per share		2.55		1.85

Liquamelt Corp.: On April 15, 2011 we acquired the principal assets and certain liabilities of Liquamelt Corp., a manufacturer and marketer of adhesives and a unique adhesive dispensing system. Liquamelt Corp. was based in Lorain, Ohio. This innovative adhesive system delivers room temperature liquid adhesive to the point of application where it is activated and dispensed. It rapidly forms strong bonds over a wide variety of substrates.

The purchase price of $6,000 was funded through existing cash. Under the terms of the agreement, the assets acquired included trade receivables, inventory, equipment and intangible assets. We assumed a small trade payables balance, but no debt was assumed. We also incurred acquisition related costs of approximately $118, which were recorded as selling, general and administrative expenses in the Consolidated Statements of Income. The acquisition was recorded in our North America Adhesives operating segment.

In addition to the initial consideration, the former owners of the Liquamelt business, are entitled to receive a series of semi-annual cash payments based on certain financial performance criteria during the period April 15, 2011 through November 26, 2016 up to a maximum additional consideration of $7,000. We used a present value technique based on expected future cash flows to estimate the fair value of the contingent consideration. The initial fair value of the contingent consideration was $1,919 which was recorded in long-term liabilities and increased goodwill. Each reporting period we determine the fair value of the contingent consideration liability and any changes in value are recognized as SG&A expense in the Consolidated Statements of Income. We have reduced the fair value of the contingent consideration liability to $449 as of December 1, 2012.

Divestitures

Central America Paints.On May 7, 2012 we agreed to sell our Central America Paints business to Compania Global de Pinturas S.A., a company of Inversiones Mundial S.A. The sale was completed on August 6, 2012. Cash proceeds of $118,459 included the $120,000 sales price net of a purchase price adjustment of $1,541 for cash in excess of target cash, a working capital adjustment to target and cash settlement of other balance sheet adjustments. The cash proceeds included settlement of our intercompany debt in the amount of $25,325. As part of this transaction, we recorded a gain of $66,179 ($51,060 net of tax) which is net of direct external costs to sell of $4,875 and a deferred gain of $5,000 ($3,135, net of tax), because a portion of the cash proceeds was determined to be contingent consideration, pending resolution of purchase agreement contingencies which we expect to be resolved in early 2014. The contingent consideration was valued at fair value based on level 3 inputs and is included in long-term liabilities of discontinued operations in the Consolidated Balance Sheets.

In accordance with ASC 205-20, “Discontinued Operations” we have classified the results of this business as discontinued operations. The operational results of this business are presented in the “Income from discontinued operations, net of tax” line item on the Consolidated Statements of Income. Also in accordance with ASC 205-20, we have not allocated general corporate charges to this business. The assets and liabilities of this business are presented on the Consolidated Balance Sheets as assets and liabilities of discontinued operations.

Revenue and income from discontinued operations for the years ended December 1, 2012, December 3, 2011 and November 27, 2010 were as follows:

	Fiscal Years
	December 1, 2012		December 3, 2011		November 27, 2010
Net revenue	$	73,143	$	113,466	$	99,336
Income from operations		8,235		12,572		11,100
Gain on sale of discontinued operations		66,179		-		-
Income taxes		(16,846)		(3,740)		(4,974)
Net income from discontinued operations	$	57,568	$	8,832	$	6,126

Income taxes for the year ended December 1, 2012 included$15,119 of tax expense related to the gain on the sale of discontinued operations.

The major classes of assets and liabilities of discontinued operations as of December 1, 2012 and December 3, 2011 were as follows:

	December 1, 2012		December 3, 2011
Cash and cash equivalents	$	-	$	1,500
Trade receivables, net		-		26,852
Inventories		-		19,549
Other current assets		-		4,583
Current assets of discontinued operations		-		52,484
Property, plant and equipment, net		-		13,296
Other assets		1,865		3,563
Long-term assets of discontinued operations		1,865		16,859
Trade payables		74		11,936
Income taxes payable		-		4,567
Other accrued expenses		-		6,097
Current liabilities of discontinued operations		74		22,600
Accrued pension liabilities		-		1,288
Other liabilities		5,000		1,456
Long-term liabilities of discontinued operations		5,000		2,744